2014 (11) TMI 980 - AT - Income Tax

Deduction under section 10A - whether to be allowed prior to setting off of unabsorbed losses and unabsorbed depreciation or not? - Held that - In terms of the decision of the hon ble Supreme Court in Himatsingka Seide Ltd. v. CIT 2013 (10) TMI 823 - SUPREME COURT we hold that the unabsorbed depreciation shall form part of the current year s depreciation and the same is required to be deducted before allowing deduction under section 10A of the Act. However the unabsorbed business loss has to be deducted only from the profit available after allowing deduction under section 10A of the Act. Accordingly we modify the order of the learned Commissioner of Income-tax (Appeals) and direct the Assessing Officer to compute the total income in terms of the abovesaid discussion. Applicability of provisions of section 115JB to the unit located at special economic zone? - Held that - The profits of the special economic zone unit are not required to be included in computing the book profit under section 115JB of the Act. See Genesys International Corpn. Ltd. Versus Assistant Commissioner of Income-tax Circle 8(1) 2012 (12) TMI 491 - ITAT MUMBAI - Decided in favour of assessee.

Summary

Issues:
1. Deduction under section 10A - timing in relation to unabsorbed losses and depreciation.
2. Applicability of section 115JB to units in special economic zone.

Issue 1 - Deduction under section 10A:
The appeal concerned the timing of allowing deduction under section 10A in relation to unabsorbed losses and depreciation. The Assessing Officer restricted the deduction under section 10A to the income available after setting off brought forward losses and depreciation. The assessee contended that deduction under section 10A should be granted before setting off unabsorbed losses and depreciation. The Tribunal referred to the decision of the Supreme Court in Himatsingka Seide Ltd. v. CIT, where it was held that unabsorbed depreciation should be considered while computing deduction under section 10B. Accordingly, the Tribunal ruled that unabsorbed depreciation should be deducted before allowing deduction under section 10A, while unabsorbed business loss should be deducted only from the profit available after the section 10A deduction.

Issue 2 - Applicability of section 115JB:
The second issue revolved around the applicability of section 115JB to units in special economic zones claiming deduction under section 10A. The Assessing Officer applied section 115JB to the unit despite the provision in section 115JB(6) exempting income from units in special economic zones. The Tribunal referred to a previous decision in Genesys International Corpn Ltd. v. Asst. CIT, where it was held that the benefits of section 115JB(6) apply to existing units in special economic zones claiming deduction under section 10A. The Tribunal further explained that the benefits extended to newly established units under section 10AA also apply to existing units in special economic zones. Therefore, the Tribunal ruled that the profits of the special economic zone unit should not be included in computing the book profit under section 115JB of the Act.

In conclusion, the Tribunal partly allowed the appeal, modifying the computation of total income and excluding the profits of the special economic zone unit from the book profit under section 115JB.